Good afternoon, ladies and gentlemen, and welcome to the OMV Petrom Earnings Call. Today's presentation will last around 30 minutes and will be recorded. By now, you should have received the presentation by email. The slides and the speech are also available on www.omvpetrom.com in the investor section. These also include the cautionary statement regarding forward-looking statements. Now, let me hand over to Simona Cruțu, Manager of the Investor Relation and Stakeholder Engagement Department, who will moderate the event.
Good afternoon, ladies and gentlemen. Thank you for joining us. We'll have a presentation of the third quarter results, followed by a Q&A session. Christina Verchere, Chief Executive Officer, will provide the key highlights about the macroeconomic and regulatory environment, our Q3 operational performance, and strategy execution. Alina Popa, Chief Financial Officer, will give you more details on our financial performance and a brief outlook. Afterwards, there will be a Q&A session. We recommend you to register for the Q&A session during the presentation by pressing star one one on your telephone keypad. You will then hear an automated message advising you your hand is raised. You can also register during the Q&A session itself. I'm now handing over to Christina.
Good afternoon, ladies and gentlemen, and a warm welcome from my side. Thank you for joining our call. It is a real pleasure to present to you today OMV Petrom's performance for the third quarter of 2022. Please let me first draw your attention to our legal disclaimer, which you can read in detail on slide 2. Let's take a look at how commodity prices and main currencies evolved in the third quarter of 2022. Brent prices averaged $101 per bbl, 11% lower quarter-on-quarter. Since the end of June, they decreased by 27% from $120 per bbl to $88 per bbl, with increased volatility. On the demand side, COVID-related lockdowns in China, as well as concerns of a global economic downturn, continued to weigh on market sentiment.
This was partly offset by large-scale switching from gas oil used for power generation in the Middle East and in Europe due to record natural gas and electricity prices. On the supply side, OPEC+ additions to the market continued to run lower than pledged, but Russian crude exports proved resilient as crude oil flows continued to be rerouted from Europe to Asia. In addition, the U.S. strategic reserve releases helped to ease the market tightness. In a year-over-year comparison, the average Brent was up significantly by 37%. In the third quarter of 2022 and on a year-over-year basis, the rand depreciated versus the U.S. dollar by 17%, but was stable against the euro.
OMV Petrom indicator refining margin reached $17.10 per bbl in the third quarter, almost $10 higher year-on-year, as a result of higher product spreads, mainly for diesel, jet, and gasoline. A combination of the sharp reduction in Russian exports to Europe, higher gas-fired power generation amid lower nuclear and hydroelectric output, and strong storage injection provided upward pressure on European gas hub prices. At an average of EUR 201 per MWh , Central European Gas Hub, CEGH price, was double quarter-on-quarter and more than 4x higher year-on-year. Towards the end of the quarter, the market saw some tightness ease as it became increasingly evident that European storage mandates ahead of the start of the heating season would be met ahead of schedule.
Gas prices in the Romanian centralized market also increased, with day-ahead prices almost 4 x higher year-on-year to an average of EUR 173 per MWh . Day-ahead electricity prices in Romania more than doubled quarter-on-quarter and more than tripled year-on-year to new record highs. Market spot spreads were also high in the third quarter of 2022 as electricity price increases outpaced those in gas and CO2 prices. The CO2 price recorded its first quarter-on-quarter decrease since the second quarter of 2020. This is due to expectations that additional certificates will come to the market during the next two to three years by front-loading auctions from 2027 to 2030. Moving to the macroeconomic environment.
In the second quarter of 2022, Romanian GDP increased by 5.3% year-on-year above expectations and also exceeding the European average of 4.2%. In September, the IMF estimated GDP growth for 2022 and 2023 at 4.8% and 3.4% year-on-year respectively versus the previous July estimates of 3.5%-4.5%. In its statement, IMF refers to the strong rebound after the pandemic, noting also the new pressures and risks posed by the war in Ukraine and rising inflation. The consumer price index in the month of September 2022 versus September 2021 was 15.9%, driven primarily by the energy prices and their impact on associated goods and services.
Looking at the energy sector in the third quarter of 2022, in the context of these unprecedentedly high energy prices and inflation concerns, the demand for our products decreased in Romania. Demand for retail fuels decreased by around 3% year-on-year, while the commercial market demand decreased by 7% year-on-year. Jet demand continued to recover, increasing by 31% year-on-year from a low base due to strong recovery in flights. Gas demand as per internal estimates decreased by 17% year-on-year. End user consumption being significantly impacted by increasing prices. Power demand was lower by 8% year-on-year, while domestic power production decreased by 4% year-on-year. Romania remaining a net importer of power in the third quarter of 2022.
Power production from hydro had a significantly lower contribution to the generation mix due to the dry weather over the period. This was partly compensated by an increase in gas-to-power and renewable power production. We mentioned in the previous quarters the temporary measures implemented by the Romanian government to address the high gas and power prices applicable starting April 2022. At the end of August, the government issued Emergency Ordinance 119, amending the previous Ordinance 27, and extending its applicability to August 2023. The main provisions of Ordinance 119 refer to the reduction of gas cap prices for heat producers for households, and the introduction of a cap transfer price for gas used in the power plants. The windfall tax for electricity producers increased from 80% to 100%.
A new tax on gas and power trading profits, taxing all profits above 2% margin was introduced. The ordinance is in force starting from the first of September. In September, it was approved with some amendments by the Senate and is now with the Chamber of Deputies. As a consequence of the newly introduced regulations and also of the high commodity price environment, direct taxes paid in the first nine months increased 5.5x year-on-year to more than RON 7 billion. As one of the main players on the gas and power market, we will be revisiting our sales strategy going forward. As mentioned, the gas volumes used in the Brazi power plant are also subject to cap prices starting September. Consequently, the portion of our gas portfolio subject to the new regulations increased to around 45% in the third quarter.
For the fourth quarter, the part of our portfolio represented by the free market is expected to shrink to less than 20% in total. The new ordinance is also impacting our power sales portfolio, leading to an increase in the regulated volumes from less than 40% in the third quarter to almost 70% in the fourth quarter. The windfall tax for power production paid by OMV Petrom in the third quarter was around RON 600 million. In addition, the government prolonged the temporary measures for the fuels market applicable voluntarily until end December 2022. We voluntarily comply with these measures and decrease the fuel prices at our filling stations starting in July. The impact on our third quarter results was EUR 53 million, and the estimate for the fourth quarter is around EUR 40 million, driven by seasonally lower quantities.
We recognize the need for the government to support consumers in these very unusual times. However, the frequent interventions, particularly in gas and power segments, brings volatility and instability for the market participants and increased risks of the market dysfunctions, including increased risk of security of supply. Price caps support demand, but a disincentive for investments in energy efficiency projects and send distorted signals to the market. Therefore, interventions should be temporary in nature and taken only after robust impact assessment. In the medium term, free market principles are fundamental for investments. On slide six, we present the key highlights for the quarter. At group level, Clean CCS Operating Result of RON 4.2 billion was the highest quarterly result ever recorded and more than tripled year-on-year on good operational performance in an unprecedentedly favorable market context with high but still volatile commodity prices.
Our operating cash flow increased by 38% year-on-year to RON 3.2 billion, while Clean CCS Return on Average Capital Employed reached 36.7 percentage points. Our downstream divisions registered record high results. In refining and marketing, this result was supported by excellent refinery utilization as well as higher margins. In gas and power, we had excellent results from international gas transactions in line with our strategic direction to develop operations in neighboring countries. Moreover, the result was also supported by volumes acquired at lower prices in previous periods and excellent power production. We are further focused on delivering on our three strategic directions and preparing OMV Petrom for capturing the energy transition opportunities. Regarding regional gas and our Neptun Deep strategic project, on the first of August, OMV Petrom became the operator of the Neptun Deep block. We have an international team in place.
Assuming key prerequisites will be in place, including clarifications regarding the free market provisions in the Offshore Law, FID is expected in mid-2023. In gas and power, we made good progress towards reaching our target of more than 1 GW of installed photovoltaic capacity by 2030. This month we announced that we concluded a partnership with Complexul Energetic Oltenia. Together, we aim to build four photovoltaic parks with a total installed capacity of around 450 MW expected from 2024. The total investments required for the development of the project amount to over EUR 400 million, of which approximately 70% is to be financed through the EU Modernization Fund. In retail, at the end of September 2022, we had photovoltaic panels installed in 110 OMV and Petrom-branded filling stations.
We aim for 150 units by year-end, covering around 30% of our network in Romania. By installing the photovoltaic panels, our retail network is taking a step forward on the path to decarbonization. Our objective is that by 2025, half of the entire network of OMV and Petrom stations in Romania are to be solar systems with low energy consumption. At the beginning of October, we announced the final investment decision for EUR 130 million new aromatic unit at the Petrobrazi refinery. This will function at modern operating standards with low environmental impact and will double the production capacity of aromatic products to around 100,000 tons per year, starting in 2026. As announced in our previous conference call, we are looking to diversify our supply sources and supply chain.
We secured the first LNG cargo equivalent to about 0.5 TWh of natural gas, which represents about 5% of the domestic consumption of natural gas estimated for October. On HSSE, the total recordable injury rate for the 12-month rolling period, October 2021 to September 2022, was 0.48. The GHG intensity slightly decreased at group level, with lower index levels in exploration and production and at the Petrom Brazi power plant, reflecting our ongoing initiatives to reduce carbon emissions. On slide seven, I would like to present the operational performance, and I will start with exploration and production. Hydrocarbon production decreased by 4.6% due to the natural decline in the main fields in Romania and the divestment of the 40 marginal fields to Dacian Petroleum in the fourth quarter of 2021.
Excluding portfolio optimization, production in Romania decreased by 3.8%, supported by higher contribution from new wells. Production cost per barrel of oil equivalent increased by 7% year-over-year to a level of $14.06. This was mainly due to higher costs related to energy, personnel, services and also due to lower production available for sale. Personnel costs increased due to one-off payments. These were partly offset by the favorable Forex evolution. We continue to focus on containing costs and counteracting the pressure coming from suppliers by intensifying our procurement activities. In refining and marketing, the refining utilization rate was 99%, well above the European average. Total refined product sales volumes recorded a 2% year-over-year decrease, mainly as a result of weaker non-retail sales performance.
The group retail sales volume slightly decreased by 1%, reflecting decline in fuel demand, mainly in July and August, despite the voluntary discounts at pump level implemented throughout the quarter. Non-retail sales decreased by 3% year-on-year, mainly reflecting lower exports, offsetting improved commercial volumes and recovery of the aviation business, yet still below pre-pandemic levels. In gas and power, total gas volumes were 11% down year-on-year. Broadly stable equity gas production was complemented with slightly higher third-party acquisitions in the context of continuing tight gas supply. During this quarter, we continued to deliver to the regulated market gas quantities as per received allocation. The Brazi power plant, which celebrated in August 10 years of commercial operations, had a record high production for a third quarter. The 1.42 TW hour produced in this quarter covered 11% of Romania's generation mix.
Moving now to slide eight. Total organic CapEx amounted to RON 2.8 billion in the first nine months of 2022, 25% higher year-on-year. The majority, RON 1.7 billion, was directed to exploration and production, where we finalized the drilling of 36 new wells and sidetracks and performed over 500 workover jobs. Drilling is ramping up, with seven rigs operational at the end of the quarter, up from four in the first quarter of this year. In refining and marketing, most of the RON 0.5 billion investments were dedicated to the ongoing major project at the Petrobrazi refinery. In gas and power, the majority of investments were directed to the Brazi power plant planned maintenance shutdown. For 2022, we will maintain our estimated CapEx of about RON 4 billion.
Regarding our E&P activities, in offshore Bulgaria, we plan to spud one exploration well in 2023 and continue prospectivity and evaluation. In Georgia Block 2, the seismic acquisition is on hold. Please let me now hand over to Alina Popa, who will go into the financials and the outlook in more detail.
Thank you, Christina, and good afternoon also from my side. I will continue the presentation with slide 10, starting with some highlights of the income statement, which focus on the development of the third quarter of 2022 versus the similar period of 2021. Sales increased by 170% year-on-year, reflecting higher commodity prices and higher sales volumes of electricity, partly compensated by lower gas sales volumes. Exploration and production Clean Operating Results increased to RON 1.4 billion from RON 0.4 billion in the third quarter of last year. The higher prices and the favorable exchange rate effect were partly offset by increased taxation, lower volumes, as well as higher production costs.
Refining and Marketing Clean CCS Operating Results increased by 71% year-on-year, reaching RON 1.3 billion, mainly due to the favorable evolution of the refining margin, but also higher retail and commercial margins. Gas and Power Clean Operating R esults increased to RON 1.3 billion from RON 95 million in the third quarter last year, reflecting stronger contributions from both gas and power business lines. The clean consolidation line of RON 294 million in the third quarter of 2022 reflects mainly the positive impact of lower quotations as well as the effect of lower stocks of crude oil and petroleum products. Consequently, the Group Clean CCS Operating Result increased 3x year-on-year to RON 4.2 billion.
For the third quarter of 2022, we recorded inventory holding losses of RON 143 million, mainly reflecting the decrease of crude prices over the quarter. For comparison, in the third quarter of last year, we recorded inventory holding gains of RON 102 million. Net special income of RON 1.1 billion was recorded in the third quarter of 2022, mainly referring to the net temporary gains from power forward contracts compared to the net special charges of RON 465 million in the third quarter of last year. The Clean CCS net income attributable to stockholders more than tripled year-on-year to RON 3.6 billion. The reported net income attributable to stockholders was RON 4.5 billion from RON 696 million in the third quarter of 2021.
Let me go on to slide 11, which shows the major building blocks for the development of the Clean CCS Operating Result. I will start with exploration and production, where Clean CCS Operating Results significantly improved to RON 1.4 billion. The positive market effect deviation of RON 759 million was triggered by the steep increase in oil and gas prices and favorable evolution of the U.S. dollar versus RON. Nevertheless, the positive effect on the higher gas market prices was significantly offset by the steep increase in royalties and supplemental taxes paid, taxes being largely referenced to CEGH price on a sharp upward trend on a year-on-year basis instead of realized gas price. As just mentioned by Christina, the E&P realized gas prices in the third quarter affected the increasing sales volumes at regulated prices.
Operational effects include a negative volume deviation due to the 4% lower hydrocarbon sales, higher clean exploration expenses, and higher production costs driven by cost inflation. These are more than compensated by lower depreciation and portfolio effects on taxation. Looking at the lower chart, refining and marketing Clean CCS Operating Results increased by 71% compared to the third quarter of 2021. The positive market effect reflects the higher refining margin as a result of higher product spreads. Operational effects in refining and marketing were overall positive and mainly reflect improved retail and commercial margins, partly counterbalanced by the fuel price discount applied during the quarter. In gas and power, the Clean Operating Results significantly increased year-on-year.
The strong result of gas business was driven by the positive effect of the increasing prices on gas transactions outside Romania, with volume sourced in the previous period at lower prices. The power business also had a good contribution to the third quarter of 2022 results, built on an environment where increasing prices and highest power production for a third quarter. These positive effects are only partly offset by the negative impact from the power forward sales contracts concluded in the previous periods and the increased power over taxation. As a result of Ordinance 119, the gas and power result in the third quarter is not likely to be repeated, considering the expected increase in taxation and the increasing weight of regulated sales volumes in our gas and power portfolios. On slide 12, I would like to continue with the highlights of our cash flow statement.
In the third quarter of 2022, we achieved an operating cash flow of RON 3.2 billion, 38% higher year-on-year, reflecting the positive trend of the operating result and the negative net working capital changes. Regarding the evolution of the net working capital in the third quarter of 2022, we recorded a cash outflow of RON 1.3 billion compared to a cash inflow of RON 136 million in the third quarter of 2021. The outflow in the third quarter of 2022 was mainly due to the increase in cash guarantees for transactions with energy products, as well as the increase in receivables driven by higher commodity prices.
This was partly counterbalanced by the decrease in inventories driven by lower unit costs following the decrease in quotations, as well as by lower quantities of crude oil and petroleum products in stock, partly offset by higher volumes of gas in storage. The increase in liabilities was mainly due to higher supplemental taxes as well as higher royalties driven by CEGH prices, partly offset by lower acquisitions. Our net payments for investment amounted to RON 0.74 billion in the third quarter of 2022, 33% higher year-on-year.
The special dividends approved by general meeting of shareholders on 26th of July in total amount of RON 2.5 billion started to be paid in September. The net cash position, including leases, increased to RON 12.3 billion at the end of the third quarter of 2022, versus RON 8.2 billion at the end of the third quarter of 2021. Let me conclude our presentation with the outlook on slide 13. We expect Brent oil price in 2022 to be above $100 per bbl, significantly above the range of $65-$70 per bbl assumed in our strategy 2030. Regarding production, in 2022, we aim to contain the year-on-year hydrocarbon production decline, excluding portfolio optimization, at below 6%, and we expect a lower decline for gas than for oil.
We expect inflationary pressure on our cost to persist throughout the year. However, being supported by a stronger U.S. dollar, we see the production cost at around $13 per bbl of oil equivalent for the year 2022. In refining and marketing, we currently see the full year 2022 average refining margin higher than $15 per bbl, mainly reflecting the exceptionally high margins in the first half of the year. The refinery utilization rate is estimated to be above 95% in 2022. As Christina mentioned earlier, CapEx is expected to be around RON 4 billion in 2022, of which RON 2.6 billion in exploration and production. In 2022, we expect a positive free cash flow even after payment of both base and special dividends.
We envisage retail demand to be broadly flat year-on-year, while demand for both gas and power to be lower than in 2021. We expect total refined product sales to be slightly higher than in 2021. However, we estimate total gas sales volumes to be lower, while net electrical output to be higher year-on-year. We currently do not expect new full lockdowns, but if this is the case, we have a good track record in managing our operations. The outlook figures are also based on the assumption of no significant supply disruptions. With this, I close our presentation, and thank you for your attention. We are now available for your questions.
Thank you, Alina. Let me remind you that if you want to ask a question, you need to press star one one on your telephone keypad. We kindly ask you to limit to three questions per participant. We will take as many questions as time permits. Once again, to ask a question, please press star one one. We'll pause for a moment to handle the queue. We are now taking our first question. Please stand by. The first question from Oleg Galbur from Raiffeisen Bank International. Please go ahead.
Yes, good afternoon. I hope you can hear me well.
Yeah, I hear you very well, Oleg.
Yes. First of all, congratulations on the excellent results, and thank you for your presentation. I have three questions. The first one relates to the dividend policy. Petrom's dividend policy was aligned or is aligned with the parent OMV dividend policy. I wonder to which extent today's announcement of the special dividend at OMV and the intention of OMV board to amend company's dividend policy could trigger a revision of Petrom's dividend policy. Put it differently, would Petrom executive board see special dividends more of a permanent or, let's say, regular way to reward shareholders, especially when the market environment is very supportive for earnings generation? That would be my first one. My second question relates to the gas and power business, which was extremely strong in the third quarter.
Would you please help us understand to which extent this was rather an one-off quarter in terms of earnings generation? Or maybe this is something that could be repeated, maybe not to this extent, but still in the next quarter or so. Moreover, could you please talk a bit about these gas transactions outside Romania so that we better understand their natures? Last but not least, how do you see the regulatory changes in the power market in Romania changing the attractiveness of the power business for Petrom? The last one is very short on the outlook. Could you explain what has driven the revision of the production guidance for this year? Is it, let's say, smaller than expected decline of crude oil or rather natural gas production? Thank you.
Okay, Oleg, thank you for your questions. I will take the production guidance one, and then Alina will cover dividend policy and the gas and power questions that you had. I think you're right. We have actually changed our outlook for production decline to less than 6%. I think I would just highlight three points. One, what we've seen obviously is we've been ramping up our drilling activity. At the beginning of the year, we were at four rigs. Now we are at seven rigs.
We have also seen that has had strong, I think, results on the gas side. So we actually see the gas decline being less than the oil decline overall there. I would say also some strong performance on our planned shutdown activity that we've had, which has given us, therefore, the confidence to change our outlook for the remaining fourth quarter as well.
Okay. I will continue, Oleg, first with the dividend policy. I mean, with regards to your comment, Petrom and OMV are two separate companies with separate governance. We have our dividend policy approved, and also we came last year together with a strategy announcement with a dividend guidance. Basically, substance for Petrom is we are talking about a progressive dividend policy where we specifically indicated with the guidance of 5%-10% increase of the base dividend every year, depending, of course, on the economic environment and provided our CapEx spend are being fully funded. Also, together with our strategy in December last year, we have announced the possibility of special dividends. That, again, depending on the financial performance of the company and the market environment.
Furthermore, as you know, in this summer, we have announced and approved by the general meeting of shareholders our first special dividend, which have been starting being paid in September. From this perspective, I believe our dividend guidance is quite clear going forward. Going to your second question, which is quite a complex one, covers a bit of several topics. I'll try to cover in the best I can. With regards to this quarter, indeed was a very special quarter. We had very good results both for gas and for power. If I would refer to your question to what extent was a one-off quarter, indeed was something very special in this quarter.
We did, we purchased gas from outside Romania in the first two quarters at quite lower prices, and we managed to sell this at very quite high prices in Q3. We did quite a significant margin from this transaction outside Romania. We have announced, maybe you remember, together with our strategy, that we will go not only remain focused on Romania, but also on the region when it comes to gas. We managed to due to the environment, which was extremely volatile, we managed to achieve quite a good result. Now, it is very hard to imagine that this will be repeated to the same extent. Definitely from a substance perspective, we'll continue to do regional transactions, so this will be continued.
It depends a lot on how the prices will evolve when it comes to the impact. Now, to give you a bit of a guidance, in almost half of the gas and power result of this quarter is coming from this gas transactions outside Romania. When it comes to how we see the regulatory changes and attractiveness of the power, this is a very difficult question. We have a lot of unclarities right now when it comes to Ordinance 119. This is changes that were done. Now we're trying still to clarify various things. It is really a very difficult to comment as we do not have full understanding.
We believe in the power business, and we believe we will be. We try to take the best decision going forward, but it will depend a lot on how regulation will be. Every time we do the charge, when we are using this optimization model, so making the call what is the best to the gas in the power plant or to sell it as such on the gas market. Gas market also being regulated now in Q4, both gas and power markets are being regulated quite a large extent. I hope I covered your questions.
Yes, indeed. Thank you very much. Maybe just one short follow-up on this.
Sure.
Transactions, gas transactions outside Romania. Did Petrom place all the volumes that were contracted in the first two quarters, or were all these volumes sold in the third quarter or there is still room to see more transactions coming?
To a large maj-
in the fourth?
To a large majority, yes, they were realized in the third quarter.
Understood. Thank you very much.
You are welcome.
Thank you for your question. We are now taking our next question. Please stand by. The next question for Ioana Andrei from Alpha Bank.
Hi, thank you for the presentation. My first question related to this trading activity abroad, so I'll go on further on. Can you please tell us what are the required regulated gas sales for the next year? Can you give us a clue on that? Further on, if you can please detail the estimated impact of the regulation on the power side. Can you please give us something more on this side? My third question relates to the EU solidarity contribution for fossil fuels. Can you please tell us what is your take on that and what are your expectations?
Okay. Thank you. Thank you, Ioana, and thank you for joining us today. Of that, Alina will cover the regulatory sales for 2023. Although I think it's really actually very hard at this point in time to be able to quantify that, so also the impact on the power side. Maybe first I'll start with the EU solidarity tax on that. I think sort of maybe fundamental principles that I think that are important for us actually is we do fundamentally believe, obviously, in free market principles. We see a lot of regulation going on. We also really recognize that we are in really unprecedented times right now, and therefore there is a strong need to protect vulnerable consumers overall.
What we do obviously seek is good consultation with the industry and good impact assessments of that, because we fundamentally believe that for the long run, free market principles should abide because this is actually what allows the strongest level for investments to occur. Investments, we believe is part of the solution with regards to increased capacities overall. With regards to the EU solidarity contribution, I think the fundamental aspect here is that a lot of interventions have been made in Romania already, as we've been talking about too on that. Therefore we see that the contributions from a solidarity perspective are already being built in. This is something that is an ongoing discussion within Romania and not yet clarified.
As you said, Romania is one of the highest taxed countries within the EU with regards to oil, gas, and now power already being in place. As we said, you can see that in the level of taxes that we are paying here in Romania right now. With that, maybe Alina.
Yes. With regards to the regulated gas sales from next year, we do not have an indication at this point in time. However, if I would refer to the sales to households and district heating companies in Q3, we talk around 10%, a bit below 10%. This will grow into increase in Q4, but for next year we do not have an estimation at this point in time. With regards to your question related to the impact of the regulation on the power side, on Q3, we have an impact of approximately RON 600 million . Going forward, we do not have an estimation. Again, there are a lot of questions around how this will continue. Thank you.
Thank you for your question. We are now taking our next question. The question is from Irina Railean from BT Capital Partners.
Hello. Hello, everyone. Thank you for your presentation. I have more like follow-up questions, especially on the gas business. I have heard many percentage figures in this call regarding the sales mix. I just wanted to understand on the slide five, you have here a split of your gas portfolio, and I just wanted to know, is this from G&P or from your equity production?
Okay. Maybe you'd like to give it.
This will be my first question.
Go on.
Yeah, yeah. Because just trying to understand on what volumes to apply these percentages. If you have a revised guidance for regulated volumes in the fourth quarter from the last call, I remember something like 3.4 TWh for the entire period, April, December. But applying this 34% on the G&P total volumes should result in a pretty high figure. I want just to know how correctly to apply these percentages and if you have revised your guidance for the fourth quarter. This 80% that have been mentioned, Christina mentioned, is it also of equity gas or of total sales in the G&P? That would be kind of a modification on this side. One more question regarding the limit on trading activity.
Do you have any clarification here? Would this apply also to volumes sold outside of Romania or only on trading activities performed in Romania?
Thank you, Irina. Alina is well-positioned, I think, on many of these questions, so.
I'll try to cover the best I can, Irina, and if there is anything, please tell me again. When we present the total sales, it's when we present the pie with the split of regulated volumes, we refer to the total sales volumes, yeah. Not only to the regulated. You asked about the fourth quarter. I mean, we do not provide exactly on the fourth quarter. I said third quarter is approximately, if we think about households and district heating, it's about 10%, a bit slightly below 10%. Fourth quarter will be higher than that. When we talked about.
What is under this 34% because it's regulated, and you also mentioned 10%?
Yeah.
How-
Let me try to explain that.
Sure. Sorry.
When we talk about regulating, we refer not only to households and district heating. We refer about what portion of our sales is affected by the legislation in a way or the other. We are affected from the legislation in various forms like, first of all, sales to households and district heating. We have sales to end users, to categories of end users, small and big, but both of them are regulated, yeah. Small ones with a cap, bigger ones with a cost plus. We have also sales which are gas which is purchased and sold, so gas where we are trading, where we pay this trading tax.
From this perspective, it comes our indication that our sales of gas impacted from legislation increased from a 45% overall in Q3 to an 80% overall in Q4. Yeah. It's not just. Also to mention gas. Also on gas, we are regulated now because sales of gas are done at a cap of RON 100 . Also there. Then in Q3, we had only one month, which was affected by this. In Q4, we will have all the three months. That's why the sales of gas which will be impacted in a different ways by legislation goes to around 80% in Q4.
Okay. Out of this 30%. Sorry.
Yeah. Go, go. Maybe you just want to repeat that, Irina?
Yeah. Out of this 34%, only 10% is to regulated households and heating plants. The remaining volume is. This also includes trading, traded volumes, I mean, the volumes.
Of gas, yes. Mm-hmm.
I mean.
Yes, yes.
Yeah.
Yes.
Okay.
With regard to.
You maintain your guidance of 3.4 TWh for gas sold to households and district heating plant for this year?
No, that is, I mean, I think we are talking. When we say regulated sales, total regulated sales affected by legislation, we are broader than that. Does not cover only households and district heating. I think here is a confusion.
Okay. Your 3.4 TWh previous guidance is also on top of regulated volumes.
It's only referring to households only.
Okay. I understand now. Thank you.
With regards to your last question related to the trading outside Romania, I mean, the regulation was issued with the purpose to protect the Romanian gas and power market. Consequently, in our view, transactions outside Romania are not subject to this contribution.
I understand. Thank you very much for clarification.
You're welcome.
Thank you for your question. We are now taking our next question. Please stand by. The question from Tamás Pletser from Erste Investment.
Yes, good afternoon. Thank you very much for your presentation. My question is relating to your to your Neptun investment. What kind of points do you have still a disagreement with the Romanian legislation about, you know, investing into Neptun? What are the areas of where you need a further clarification or further confirmation from the government to go ahead with this investment? Thank you very much.
Thank you, Tamás, and thank you for joining us this afternoon. Let's have a Neptun moment. As I said in my presentation, we became operator on the first of August, after the completion of the Romgaz and ExxonMobil transaction. We have built up a strong team, as we've had in place actually for some time now. Moving things forward at pace. We do actually see some need for clarifications, ultimately related around the free market provision and just understanding what that means. You can obviously probably understand, even in the context of today, of what's going on, the importance of understanding the free market aspects with regards to this investment.
Please be assured that we are also working at the same time, with regards to the procurement process, to be able to clarify the costs, on the tendering side. With that, with all of these then to be able to move forward to the internal governance, which is why we've put ourselves at a mid-2023 FID decision, which is what we're aiming towards.
Okay. Have you agreed everything with the government on this investment, or what do you mean by this free market provisions, and what problems do you still see with this kind of assumption?
First of all, just to clarify, in the end, obviously the government legislates, you know, and that is a decision that the government makes. What we're looking to clarify is that there is an article in the Offshore Law, I think it's Article 21, which sort of is trying to stipulate where free market exists and where some of the step away from free market can occur. It's around this that we want to understand clarifications, with regards to ultimately the stability that we can expect as we move into this investment decision.
Okay. That's perfect. That's clear then. Thank you very much.
Thank you.
Let me remind you that if you want to ask a question you need to press star one one on your telephone keypad. The next question come s from Iuliana Ciopraga from WOOD & Company.
Hi, hi. Thank you for the presentation. I have a couple of questions. Also, most of them related to gas. Just to clarify, the chart on page five refers to upstream gas sales, excluding the trading of gas outside Romania. Secondly, can you disclose the average realized price for the 34% sold on the regulated market? Also, regarding the sales on the free market, do they follow the realized price on the BRM? Another question on the special dividend. Was it paid because of good performance in 2021, or when? What's the cut-off date for the special dividend? That's all on my side.
Thank you, Iuliana. I think there's a few repeats in there.
Mm-hmm.
Alina, on the first three.
Yes. On the pie refers to total sales, Iuliana. Total sales including everything.
Oh.
Including sales outside Romania, including everything. This is what it refers. I'm not sure if I captured correctly your other two questions. They were around the realized price of gas, right? If you could repeat-
Yeah.
The second question. Okay.
The realized price of gas for the 34% sold on the regulated market, which now I understand that it refers to the 10 TW sold in the third quarter. Everything, including the trading outside of Romania.
Yes.
That's the other question. I mean, if you included those volumes here in this graph.
Yes. Yes, we did. When it comes to the realized price, you know, we do not publish our realized gas price. It follows the market price to a good extent, but only lower than the market price, as we have quantities which are sold at regulated prices and also quantities which are coming from contracts which were done in the previous period. It would be.
you know, I was referring just on the regulated market on what you define as regulated market. Just on this.
We have a combination of sales in this regulated chapter. It's very hard to give a number. I mean, some of them are straightforward because they are RON 150 and RON 250, that we all know. We also have some cost plus quantities.
In the cost plus, is it upstream cost plus or what cost? Or the transfer between,
It is a transfer price plus all the other costs in the gas and power division. It's not the upstream cost plus.
The transfer price follows. What does it follow?
Always the arm's length principle.
It follows the sales on free market.
Yeah. It's arm's length principle. I cannot provide more details on that. We always try to benchmark the best with the market price, yeah. Like if the E&P and gas and power will be two separate entities, we try to picture that in a transfer price logic between the two divisions.
Thank you.
I mean, to consider, we have also gas purchased from third parties, yeah. Which is sold with a cost plus mechanism. It's a combination. It's not only equity.
Okay. Mm-hmm.
On the special dividends, we announced our special dividend in June of this year, paid it in September of this year. I think it's a combination of effects with regards to it. Obviously it is linked to the prior year's performance, but also overall ensuring a funding of our investments, moving our strategy forward. At the same time wanting to make sure we return in upside opportunities some of this to the shareholder.
Okay. Thank you. Thank you so much.
Thank you, Iuliana.
Thank you for your question. We are now taking our next question. The next question from Daniela Mandru. Please go ahead.
Hi. Hello, everybody. I have a question related to the realized gas price in the E&P. I'd like to do together and you, the management, to help us underpin the rationale of the trend in these prices. For example, the question is, in the third quarter, the realized gas price decreased or increased? What is the rationale behind? And what is the outlook for the last quarter? Please, if you can help us.
Any other questions, Daniela, or just that one?
Yeah. The other one would be related to the CapEx, because from your outlook, I understood that the RON 4 billion forecasted CapEx will depend on the investment climate, and I would wonder what would be the variables impacting the CapEx in the last quarter of the year.
Okay, thank you. Alina Popa, you want me to start with it?
With regards to the realized prices, quite complex. Yeah, it is a combination of different. Of the structure of our gas. We have different categories, so it's quite complex to comment, to be honest, overall. If I would refer to the Q4, we expect a decrease in realized gas price triggered by two dimensions. On one hand, we see already market price going down, but even more important than that, the portion of regulated quantities is increasing in Q4. Yeah. Both the fact that power plant in Q4 will be affected. I mean, sales of gas to the power plant will be affected by this regulation three months.
If we had only one month in Q3, meaning that these sales and sales to power plant are approximately 30%, roughly, would be that would be, what, 100 per MW. Also that regulated sales in Q4 are increasing. Yeah. With the winter coming, households and district heating need more gas. Consequently, that part is also increasing. Having in mind that now district heating customers also moved from 250 to one hundred fifty. Overall, as a trend, Daniela, we'll decrease in Q4.
Yeah. Okay. This confirms our intuition.
Just one more.
Yeah.
Okay, just one more. When I'm saying decrease, I refer decrease to Q3. If we could compare to the Q4 of last year will be still higher.
Yes, but Q3 compared with Q, the second quarter of this year, increase or decrease?
Q3, no? Q3 when
Q3.
Slight up.
Q3, yes, quarter-over-quarter, slightly up. Yes.
Mm-hmm.
In the first quarter, the realized gas price in the E&P increased compared to the second quarter.
Mm-hmm. Yeah.
Mainly helped by probably the free market prices.
Yes. Because the free market prices had a bigger impact in the Q3, however, affected by legislation overall.
Mmm-hmm. Okay. Thank you.
On your CapEx question that you had, maybe I would just bring a couple of points, obviously. I think what you can actually see is we do continue to see CapEx ramping up, in part driven by the increase in drilling activity, from the first quarter. Obviously, we were at four rigs, now we're at seven rigs, in that. I think with regards to investment climate, I think we just also need to recognize that we have a combination of factors going on, particularly that might impact E&P, and this would be with regards to in the supply chain, we are seeing cost pressures. We are seeing overall cost pressures, and at the same time we are seeing regulated prices of that and a lot of volatility.
The combination of those, always got to say, you know, our goal will always be to make sure that we have robust economic decisions in making our investments in the context of, as I said, increasing costs and volatility in the regulatory environment, which is obviously our ability to predict what we think will happen with pricing. Those are the factors that we need to take into consideration. As you would expect us, because I think we're a very capital-disciplined company. I hope that addresses your question.
Thank you. The following up question would be, this RON 4 billion CapEx for the full year, is your base case scenario or the optimistic case scenario? And what would be the worst-case scenario?
At this point, Daniela, we just provide one scenario on our outlook. I'm glad which is what we can include in our outlook. The only comment I would make, obviously, is there is a fair amount of volatility which we will also need to take into consideration as we make investment decisions.
Okay. Thank you. Thank you. Thank you very much.
Thanks.
Thank you for your question. We are now taking our next question from Ioana Andrei. Please go ahead.
I have a follow-up question on the gas side. Considering the fact that we started the next gas year or is soon starting, can you please give us some clues on how much of the volumes are already secured? If prices for the next year should reflect the high third quarter environment, pricing environment, or more rather the quite steep downturn from the last couple of days?
I can hear you. We really have a lot of questions around next year ourselves.
Yeah.
We have a lot of uncertainty around regulation. We do not know yet the regulated quantities for next year. When it comes to prices, as you can see, the volatility is huge. Even between Q3 and Q4, it's incredible. Overall, we see prices at high level, but we cannot indicate anything more than that.
Yes, what I was actually trying to find out if you're already selling gas for the next year on the free market, not on the regulated side. Besides the regulated side.
Very, very little. Yeah. By comparison with the past, everybody's waiting to see how the legislation will be finally remain for next year. What we see is, with most of our customers, we do have contracts until end of December, and there is not much done for next year on free market.
Okay. Thank you very much.
You are welcome.
If there are no more questions, I want to thank you again for taking part in our conference call. For further information, please do not hesitate to contact our investor relations team. Until our next call, wish you all the best. Thank you. Stay safe.
That concludes.
Thank you.
the conference for today. Thank you for participating.